Example of Transitioning to Multiple-Element Arrangements

This example illustrates the difference between recognizing revenue directly on source records (old) and recognizing revenue using multiple-element arrangements (new). It also shows what the opening adjustment values will be once you have transferred previously committed values and you recognize revenue on the revenue contract for the first time.

The values below show how revenue is recognized for a contract to provide a phone service for a year, including a free handset. When recognizing revenue directly on source records (typically for ASC 605), a value of 50 is recognized each month. When recognizing revenue using multiple-element arrangements (typically for ASC 606), revenue is allocated to the handset upon delivery because it is a distinct performance obligation. The remainder is allocated in equal amounts to the phone service.

	Deliverable	Total Revenue	Template Type	Jan	Feb	March	April	May	etc.
Old	Phone service	600	Equal split	50	50	50	50	50
	Phone handset	0	n/a	0	0	0	0	0
New	Phone service	420	Equal split	35	35	35	35	35
	Phone handset	180	Deliverable	180

The business chooses to set the date for switching to multiple-element arrangements as April 1 2016. This is used as the cutoff date when running the Transfer Previously Recognized process. The result of the transfer process is that the previously committed value of 150 is transferred to the performance obligation for the phone service. The first time you run revenue recognition on the revenue contract, the opening adjustments shown below are made to bring the performance obligations' previously committed values in line with the amounts that would have been recognized under the new legislation (ASC 606).

	Recognized (Old)	Recognized (New)	Opening Adjustment
Phone service	150	105	-45
Phone handset	0	180	180